Report questions value of insurtech despite record investment

Report questions value of insurtech despite record investment

Investment in the insurtech sector reached record highs in Q1 2019 yet there is lack of obvious value in the many of the newest insurtech offerings, according to a recent report.

The latest Quarterly Insurtech Briefing from insurance broker Willis Towers Watson showed that the highest number of transactions yet (85 with a total value of $1.42bn) were made by insurtech investors in the first three months of the year.

This made it the third consecutive quarter in which value exceeded $1bn although it was an 11% reduction in total value compared to the previous quarter

However despite no shortage of capital, the WTW report suggests that there is still a lack of clear value from many of these nascent insurtech offerings.

“One could argue that much of the InsurTech space is in fact akin to the emperor’s new clothes,” says Andrew Johnson, global head of Willis Re. “In other words, there are very few people feeling brave enough to say, ‘where is the change or the improvement?’”.

Johnson says that WTW recognises the importance of appropriate technology to the insurance marketplace as well as the potential for innovation, adding that “we are positive that some insurtechs are adding genuine value”.

But, addsJohnson, the ability to rationalise the sheer volume of hopeful companies and hype in this space “is becoming an increasingly difficult task”.

The fact that total value of Q1 deals dropped despite the number of deals rising does suggest perhaps a subtle change in the price investors are willing to pay to finance new insurtech offerings. 

Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 14 May, 2019, 13:57Be the first to give this comment the thumbs up 0 likes

When I was booking flight tickets on Expedia.de nearly 20 years ago, I raved about the context-sensitive offer of "Baggage Loss Insurance" for a few extra Euros. Until someone told me airlines are required by law to compensate loss of baggage. More recently, I gushed about another insurance product on AXA Fizzy - The New Kid On The Blockchain. Until @JamesPiggot pointed out that "in the EU there is statutory compensation for late or cancelled flights ". Most recently, I thought a digital insurance company was doing a great job by offering compensating for loss of baggage on Indian trains. A coworker just rained on the parade by explaining that Indian Railways is liable for compensation of lost baggage. 

In each case above, passengers don't seek the basic compensation bundled with their ticket prices. This could be because of (1) lack of knowledge of the free-of-cost cover (2) heavy friction associated with the claim process.

In all cases, passengers buy the third-party InsurTech product because of their (1) high visibility (2) contextual offers (3) 100% digital fulfillment (4) low friction.

Going by the above, I'd agree with this report that insurtech does not offer much value from the core product p.o.v. But I'd argue that insurtech does offer a lot of value from the customer experience p.o.v. 

Only time will tell how many people will pay for products of that nature - low product value, high CX value. And whether that number will deliver the scale required for insurtech to become a sustainable business in the timeframes expected by their VC paymasters.

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